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Prepare For Uncertain Times With 23 Tips To Build Your Emergency Fund

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A shocking 69% of Americans have under $1,000 in savings, according to a 2019 GOBankingRates survey. That lack of emergency funds leaves people ill-prepared for financial emergencies.

Right now, many people are experiencing tremendous income insecurity since the novel coronavirus (COVID-19) was declared a worldwide pandemic in March 2020. Many people have lost jobs, been furloughed or taken pay cuts as a result.

To make sure you’re financially covered in situations as extreme as this or for even less extreme situations like if you need to make a home repair, it’s a good idea to have a comfortable savings account that’s earmarked for emergencies. To help you reach this goal, follow this step-by-step guide to create an emergency fund.

Last updated: May 13, 2020

Plan For 3 to 6 Months of Savings

Whether you’re just starting to save money now or you’ve been saving for some time, consider setting a minimum goal of three to six months’ worth of emergency funds to cover as many expenses as possible. From mortgage or rent to food and utilities, your monthly expenses add up, and it takes time to build up that extra cash.

Assess Your Spending

You can’t start saving until you know how much money you spend and, more importantly, what you spend it on. Write down your monthly income, then list everything on which you spend money during the month. Include essential recurring expenses like your mortgage or rent payment and child care.

Don’t forget the fun stuff — like how much goes toward eating out, catching the latest movie or keeping up with the latest fashion trend. Optional items and impulse buys are prime spots from which you can divert money into your rainy day fund.

Use an Interest- or Dividend-Bearing Account for Your Savings

Emergency cash should be liquid in case you need to access it. Don’t put the money at risk because the possibility of losing it negates the purpose of building up a reliable emergency money source.

You won’t want to put your emergency savings in the stock market, but instead, put the money in a high-yield, interest- or dividend-bearing account, and watch your money grow safely.

PenFed’s Premium Online Savings account offers a higher annual percentage yield at 1.25%1, so that you can earn even more money as you put your funds away into an emergency savings account. With just a $5 minimum to open this savings account, you don’t need much to start increasing your savings as the funds sit in your account and grow until you need them.

1APY (annual percentage yield) is accurate as of May 12, 2020, and is subject to change at any time. Fees may reduce earnings. Federally insured by NCUA.

Make a Budget

You can’t save money if you don’t control your spending and free up enough cash to divert to your emergency fund. If you’re asking yourself how to save money on a tight budget, the answer starts with a review of your income and cutting unnecessary expenses.

Go through your list of expenses and ask yourself:

  • Do you need all the extra movie channels on your television streaming package?
  • Could you live without that fancy latte a couple of days a week?
  • Are you allowing room for occasional necessary expenses like new car tires?

Set Reasonable Goals

Financial goals are different for everyone. If you have a mortgage, kids, auto loans or even a reasonably fun social life, saving $10,000 sounds about as feasible as climbing Mt. Everest. But here’s the thing: No one climbs Mount Everest overnight. They get to Base Camp, then Camp I and so on. Weeks later, they’re on the summit.

Conquering your emergency fund goal should work the same way. Make $10,000 your ultimate goal, and strive to reach it in smaller steps, even if you’re just saving $20 a month to start.

Check Out: Here Are the Banks Providing Coronavirus Relief to Customers Suffering From the Financial Effects of the Pandemic

Track Everything and Pay With Cash

Once you’ve come up with a reasonable budget, use mobile banking and budgeting apps to keep yourself on track.

It’s easy to overspend when you whip out your credit card because you don’t see the total damages until your statement arrives at the end of the month. Your budget provides a list of expenses with which to track your outflow. When you visit a store to purchase budgeted items, bring just enough cash for the planned purchase. This keeps you on budget and preserves your emergency cash stash by eliminating the ability to add just a few more items.

Pay Yourself Like a Bill

Treat your emergency fund contribution with the same respect that you handle your housing or utility payments. Take things out of your hands entirely and ensure that money from every paycheck goes into the fund by setting up direct deposit.

Many employers can split your deposit between two accounts so the proper amount goes into your rainy day fund, with the rest going into the account you use to pay the bills. This eliminates the temptation to skip that fund contribution “just this once.” It also helps you save money fast as opposed to adding to your fund sporadically.

And Automate Other Savings To Yourself

If you have to stop and think about saving money, you are probably far less likely to save it than if you automate your savings deduction.

If you can’t have some of your paycheck automatically deposited to your savings account, then you should know that most banks make it easy to set up ongoing transfers online that you can modify as needed. Once you automate it, you can learn to budget around that money while growing your savings.

Invest In Long-Term CDs

Investing money can be risky, particularly if that money is invested in funds that rise and fall with the stock market. Since COVID-19 struck, the U.S. stock market has taken a significant hit. However, putting your money into something like a certificate of deposit (CD), which has a fixed interest rate for a set period of time, is a sensible and risk-free way to save money so long as you don’t need immediate access to it.

Don’t Delay Your Emergency Fund To Pay Off Credit Card Debt Instead

Saving money in an emergency fund and paying off credit card debt are two financial strategies that can peacefully coexist. Don’t delay starting your rainy day fund while paying off your credit cards.

Instead, use a strategy like “snowballing.” Pay off the card with the smallest balance first, then add that money to the payment for the next-smallest balance until all of your cards are paid in full, or channel as much money as possible to the card with the highest interest rate.

Pay Off Credit Card Debt

It may sound counter-intuitive to save money by spending it but it actually makes perfect sense; when you carry credit card debt, you’re also racking up interest, which is money you’ll never get back. Instead, as you also work on your savings, pay off your debt. Once the debt is gone, not only will you have back your monthly payments, but you’ll also be saving on interest.

Afraid of Losing Your Job? 26 Ways To Financially Prepare Now

After You Pay Off Debt, Add That Money Saved To Your Fund Every Month

If you’re able to pay off credit cards and keep them at a zero balance, put what you would have paid on them into your emergency fund instead. You won’t miss that money since it’s already figured into the budget.

And to make the most of those extra funds, add them to an account like PenFed’s Premium Online Savings account, which has a higher-than-average APY. PenFed’s savings account also doesn’t have a monthly maintenance fee so you will keep more of your money with you as it grows with little effort on your end.

Tap Other Emergency Services First When Needing Money

Sometimes, you face emergencies for which outside assistance is available. For example, the Federal Emergency Management Agency assisted victims of Hurricanes Irma and Harvey. This type of aid varies and might come from nonprofits, like help from the Red Cross in case of a house fire.

You can always Google for the type of assistance you need, whether it’s related to food, housing, medical or something else.

Save Your Raise

While few people may be seeing raises right now in the time of the pandemic, things will eventually go back to normal. If you get a raise, consider investing a significant portion of it in an emergency fund instead of adapting to the increase. A CNBC finance expert recommends you save at least 33% of your raise. As an example, if your raise equals $5,000, you’d save $1,650 of it.

Save Any Other Unexpected Money

Life has a not-so-funny way of offering up more unexpected expenses — car breakdowns, lost cellphones, teenagers — than unexpected income. But there is the occasional greenback-filled birthday card or bonus from work. When those come along, put as much as possible right into your emergency fund.

You don’t have to squirrel it all away, but adding the majority to your savings can help you build your rainy day fund quickly.

Don’t Casually Tap Into Your Rainy Day Fund

Your emergency savings fund is just that — savings for emergencies. It’s important that you leave it alone until you’re really in an emergency and don’t have any smart alternatives.

It might be tempting to tap into it for a nice vacation or another big life event, but you’ll be happy you didn’t when a real emergency hits.

Take Out a Loan for Nonemergency Expenses

When your old clunker dies, it feels like an emergency. But, it’s better to take out a car loan for the replacement vehicle — especially if you can find a low-interest loan. The same goes for home repairs or upgrades — which could be financed with a home equity loan — and college expenses that are eligible for a low-interest student loan.

However, when you’re looking for emergency loans, bad credit might lead you to consider options like payday loans. Beware of taking out these high-interest emergency cash loans, as they might have interest rates of almost 400% when calculated annually. Avoid these emergency loans, and stick to options with reasonable interest rates.

See: The Coronavirus Is Changing How Americans Spend and Save

Don’t Dip Into Your Fund Because You Lost Your Job

Losing your job probably seems like the right time to dip into your emergency fund. But think twice before you do. You should first consider applying for unemployment. You can also see about picking up some gig work while looking and applying for other jobs.

Sign Up For Automatic Increases in Contributions

Whether you contribute to a savings account or a 401(k), some of these allow for what is known as an automatic increase, which takes place annually. If you sign up for this, every year the amount that is deducted from your paycheck or checking account and put toward savings will increase, often by a very small amount, such as 1% but that amount adds up over time.

Take Coupons Seriously

Coupons may save you more money than you think. If you tend to ignore the flyers that come in your newspaper for sales and coupon offers or don’t take advantage of discounts, you are missing out on opportunities to save money that you could put into your emergency fund. Take advantage of coupon apps and sites, such as Ibotta and Groupon, as well.

Take a Temporary Gig

While few people have the luxury of taking on a second job to earn more money and many are striving to hold onto the ones they have in the COVID-19 crisis, the gig economy is still very much alive. Work like this often allows workers to set their own schedule, pick and choose gigs that work for them and other flexibility that might enable workers to earn a little extra rainy day cash. Of course, you have to remember to put that extra money aside.

Seek To Sell

Whether you’re planning to pad your emergency fund for the future or are in a pinch right now due to COVID-19, consider what items you might have on hand that you could sell for quick cash. From your old car that you aren’t using to clothing in good condition to electronics and appliances, many people prefer to purchase used items for their price point. Some places to sell include Craigslist, Facebook Marketplace, Fulfillment by Amazon and eBay.

Revise Your Budget

Every so often, you should revise your budget because extra money you could be saving for an emergency may be sitting in plain sight in your current expenditures. Revising your budget to cut back on expenses can free up that money to be put away for a time when you’ll need it most. You may not think you can cut corners, but there are always places to look, from cable and internet packages to eating out.

More From GOBankingRates

Jordan Rosenfeld contributed to the reporting for this article.

This article originally appeared on GOBankingRates.com: Prepare For Uncertain Times With 23 Tips To Build Your Emergency Fund

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AROUND OREGON: A financial lifeline during Covid

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The economic downturn caused by the pandemic has hit Indian Country particularly hard. Entrepreneurs are turning to small, local lending institutions in a region that’s often outside the reach of traditional banks.

Clients of Roxanne Best take part in one of her paddleboard yoga classes on the Okanogan River. (Courtesy/ Underscore)

Roxanne Best was preparing to relaunch her photography business when Covid made its way to the U.S. A serial entrepreneur and member of the Confederated Tribes of the Colville Reservation, Best teaches paddleboard yoga classes and artist-in-business workshops. She also taught “Indianpreneur” classes, the term used by an Oregon nonprofit for its business workshops. To put the photo enterprise back on its feet, she purchased marketing materials and scheduled events to showcase her product to clients.

“Then the pandemic hit and all the gigs I was scheduled for were canceled,” Best said in a telephone interview from her home 40 miles south of the Canadian border. “The income I was expecting was gone.”

Best went from helping other entrepreneurs get started to needing assistance herself. So she turned to the Northwest Native Development Fund, a community development financial institution based in Coulee Dam in north-central Washington state. Known as a CDFI, the fund is a private financial institution that delivers affordable lending to help low-income, low-wealth, and other disadvantaged people and communities. CDFIs mostly focus on specific communities or regions and provide funding and other services to encourage economic development and economic security.

The funds are nothing new — the Northwest Native Development Fund has been around for more than a decade. But the funds have been a lifeline to entrepreneurs who don’t have access to connections with traditional lines of credit during the economic downturn caused by the pandemic. Indian Country, and businesses in the arts, entertainment, and recreation, have taken a hard hit during the pandemic, according to a report by the Federal Reserve Bank of Minneapolis’ Center for Indian Country Development.

Many reservation residents in the Pacific Northwest “don’t have an ATM on their land, let alone a full-service bank,” said Amber Shulz-Oliver, a Yakama-Wasco descendant who is the executive director at the Affiliated Tribes of Northwest Indians – Economic Development Corporation. “Many don’t have collateral like a house or a rich uncle to borrow $10,000. CDFIs can be an institution that is trusted to get that kind of capital to build businesses.”

The battle to end predatory lending

Ted Piccolo, executive director and creator of the Northwest Native Development Fund based on the Colville Indian Reservation, is considered the region’s CDFI guru.

NNDF, which Piccolo founded 13 years ago, has lending capital of about $5 million. He would like to double that war chest by the end of the year.

“If we had to, if people came to the door, we could deploy close to $8 million tomorrow with the money on hand,” he said, noting that total would include loans already out.

The fund opened its doors in 2009 with classes, workshops, and small business planning.

“I was looking for ways to get some of our Native-owned businesses financing who couldn’t get traditional financing,” said Piccolo, a member of the Colville Tribe. “They were stuck in the water, on the sidelines.”

NNDF became a quasi-business consultant, educating business owners about the financing process and the need for good credit. Toward that credit goal, NNDF initiated an “anti-payday loan” program.

“One of the reasons for bad credit was people getting into all this high-risk stuff, super expensive predatory sinkholes that they couldn’t get out of,” Piccolo said.

People were trapped in a system that operated to keep borrowers in debt. Piccolo said predatory lending practices that include the principle, interest, and fees, can reach 200 or 300 percent, and create an exponential and unending debt.

Instead, NNDF offers a loan product that allows an individual to pay off a hypothetical $1,500 loan over 12 months with an interest rate of 15%, building new credit as he or she pays off the loan.

Borrowers are incentivized to pay off their advances with the promise of better interest — as low as 10 percent — on ensuing loans.

As envisioned, borrowers will pay off their NNDF loans and build enough beginning credit to obtain further credit through more traditional banks or credit unions. On top of providing loans, the fund offers counseling to help clients build business and marketing plans. Staffers hold family budget workshops, and in 2019 the fund financed the construction of a house to address a shortage of homes in the region.

Economic development means a robust private sector

CDFIs serving Native American communities give an economic boost for the entire region, Shulz-Oliver said.

“One of the big tools of economic development is a robust private sector, but small businesses need capital,” she said.

Piccolo said the biggest challenge for CDFIs in Indian Country is “human capacity” to operate the financial institutions.

“Out here on the reservation there just are not a lot of loan officers, accountants or controllers,” Piccolo said. “We need to train them and pay them, and still operate at the same time. We’re all learning on the fly, learning how to train while raising money to train and lend.”

And while CDFIs aren’t new — there are at least 1,000 of them, 70 of which serve Native communities, across the country — they’re growing. A 15-member Northwest Native Lending Network of developing or operating CDFIs was organized in 2019 at the Economic Summit for the Affiliated Tribes of Northwest Indians – Economic Development Corporation. The Northwest’s newest CDFI is the Nixyaawii Community Financial Services serving the Confederated Tribes of the Umatilla Indian Reservation in northeastern Oregon.

In the Northwest region, many Native CDFIs’ business portfolios consist primarily of natural resource-based ventures, with loans for logging equipment and fishing boats. However, CDFIs work with all kinds of clients, including a software company trying to get off the ground with help from ATNI’s Economic Development Corporation. The goal of these institutions is to help clients reach financial stability so they no longer need the CDFIs’ services.

“We’re trying to put ourselves out of business, to make individuals credit worthy enough” to access more traditional funding sources, Shulz-Oliver said.

Loan provided needed boost

Best provides training and teaches her yoga classes, but her bread-and-butter is portrait photography, especially photos for high school seniors.

More than a year after the pandemic hit the U.S., Best is still in business, eying senior portraits and the paddleboard yoga season. Best said the NNDF loan provided cash flow that carried her through the initial shock of the economic slump.

“That $5,000 is all it took to get out of the stressed-out mindset,” she said. “Now the bills are paid. You’ve got a good month or two to figure out how to make things work. That one little loan transformed the direction I was able to grow with my businesses.”

This story published with permission as part of the AP Storyshare system. Salem Reporter is a contributor to this network of Oregon news outlets.

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Why Are Certified Pre-Owned Cars More Expensive?

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The used car vs. certified pre-owned (CPO) argument can typically be summed up with the phrase “you get what you pay for.” Both are technically used vehicles, but CPO cars have a few advantages that may be worth their price tag.

Why CPOs Cost More Than Regular Used Cars

A CPO vehicle is commonly called the cream of the crop of used cars, and its price tag often reflects this. CPO vehicles tend to be more expensive than standard used ones.

But, why?

One of the biggest reasons why CPO cars are more expensive than their used counterparts is that CPOs are inspected by a manufacturer-certified mechanic. This means that every CPO vehicle must meet certain standards before it’s labeled as such. A true CPO is sold at a franchised dealership. Mom-and-pop dealers don’t have these vehicle options (and “dealer-certified” is not the same thing as a manufacturer-certified car).

Another reason for the higher price tag is that many CPO vehicles have just come off-lease. When a lessee returns a lease, the manufacturer’s likely to inspect to see if it qualifies for their CPO program. Since most auto lease terms are around two to three years, many off-lease cars make the cut when they’re returned clean and meet the low-mileage requirements. CPO cars are also refurbished, unlike regular used vehicles.

Each auto manufacturer has its own set of standards for their CPO cars, but the guidelines are usually in this ballpark:

  • Vehicles typically must have less than 80,000 miles
  • Some luxury brands require less than 50,000 miles
  • Typically must be less than ten years old, sometimes newer
  • Only one previous owner

Regular used cars don’t go through these rigorous manufacturer inspections before they’re sold. A used vehicle may be inspected in-house at the dealership before it’s sold, but likely not through the manufacturer like a CPO.

CPOs Are Covered

All CPO vehicles come with some sort of warranty, which adds to the overall cost, but offers peace of mind. Being on the newer side, many CPO cars may still be covered under their original manufacturer’s warranty and often include an extended warranty once that expires.

Some perks manufacturers may include in their CPO warranties include:

  • Why Are Certified Pre-Owned Vehicles More Expensive?12-months of 24-hour roadside assistance
  • A 12-month warranty after the manufacturer’s warranty expires
  • A vehicle history report
  • Powertrain coverage
  • Car rental coverage
  • Trip interruption benefits

Of course, manufacturers vary in what their warranties include when you purchase a CPO vehicle. Be sure to read through the exclusions of the warranty so you know what the terms are, how long you’re covered, and if there are any limitations.

Can Bad Credit Borrowers Finance a CPO?

Generally, bad credit borrowers are told to finance a used vehicle over a brand new one because used cars come with a lower sticker price, usually. However, while CPO vehicles tend to be a little more expensive than regular used vehicles, a CPO’s selling price is still likely less than a new car due to initial depreciation. Depreciation is loss of value over time due to mileage, age, and normal wear and tear.

Brand new vehicles lose a lot of value in the first two or three years of ownership, possibly up to 20% in that time, and it’s usually the steepest drop in value over the life of the vehicle. However, after those first couple of years, depreciation tends to slow down. If you opt for a CPO car, it’s usually much less expensive than its brand new equivalent, and very likely has already seen its steepest drop in value.

A CPO car is likely a more attainable option for bad credit borrowers than a brand new one. And if a borrower with credit challenges works with a special finance dealership that’s signed up with subprime lenders, CPO vehicles can be an option if they meet lender requirements.

Ready to Stop Looking and Start Shopping?

Sometimes the toughest part of car shopping is figuring out which dealership you can work with. There are so many dealers out there, and it can be tough for bad credit borrowers to tell which ones are signed up with subprime lenders that can assist with credit challenges.

At Auto Credit Express, we’ve crafted a nationwide network of special finance dealerships that are able and willing to help bad credit borrowers get the vehicle they need. Skip the search for a dealer with bad credit resources and let us do the legwork for you.

Starting is simple: complete our free auto loan request form and we’ll look for a dealership in your local area with no obligation.

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My husband signed for a car for a friend — against my wishes. Now we get notices for unpaid tolls and parking tickets. What if there’s an accident?

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My husband signed a car lease for a friend. He told me he was co-signing because his friend had bad credit even though I objected to that and asked why his friend can’t just buy a used car. Then at the last second, my husband told me that his friend’s credit “was so bad he had to take out the whole loan” in my husband’s name only.

Aside from the fact this story doesn’t add up, he is now getting second notices for unpaid tolls and parking tickets, and just sends them to his friend and trusts him to pay. He ensures the lease payments are made every month, and tells me that tolls will send collections notices before reporting to credit-collection agencies.

He also claims that his friend has insurance, but that doesn’t add up. The state we are in requires the owner to have insurance. He tells me that none of this is my business, and I have no right to be upset. Yet every time another “past due” envelope arrives I panic at the thought of the savings I worked so hard to put away might be gone in one accident, and that the home I wanted to buy with our excellent credit won’t be possible anymore.

Can you help me explain to him why this was a very bad idea, and why it’s not “none of my business,” as he says? What options do I have to get us out of this mess before we lose everything?

Panicking Wife

You can email The Moneyist with any financial and ethical questions related to coronavirus at [email protected]

Dear Panicking,

Yes, your husband is responsible for the vehicle insurance, especially if someone else is driving this car on a regular basis. If the documents say the borrower should be the primary driver, your husband’s arrangement with this friend is a “straw deal” and is likely also illegal.

But your problems go way beyond this car. Your husband’s willingness to take out a lease on behalf of a friend, and endure these collection notices, raises many red flags. What does your husband owe this person? Why would he go above and beyond any reasonable expectation of a friendship to risk his finances and credit rating in this way? The fact that he did this against your express wishes and good sense adds insult to injury. Something is wrong with the bigger picture.

As for your husband’s legal liability. According to Maggiano, DiGirolamo & Lizzi, a law firm based in Fort Lee, N.J., “As strange as it may sound, you can be held liable for a car accident that involves your vehicle — even if you weren’t present at the time. In most motor vehicle accidents, the negligent driver is the one held liable for any injuries or harm caused. However, in certain situations, the law can attribute fault to the owner of the car instead.”

The firm cites the legal principles of negligent entrustment and negligent maintenance. The first involves “entrusting your vehicle to someone who was unfit to drive.” Negligent maintenance “is the failure to properly maintain your vehicle, presenting a safety risk for anyone driving the car. This term ‘negligent maintenance’ is used because you have a duty to other drivers to keep your car in safe, working condition as to minimize the risk of an accident.”

Given that your husband owns the car and it is being driven by someone who is not paying its bills, and creating more costs through careless driving and bad parking, your husband is already fully aware that this is a bad situation. You are left without a “why” or action by your husband to address this. Take a closer look — with the help of an attorney — at your joint/separate finances, and explore ways to protect your savings. You also need to take action to restore your peace of mind.

Otherwise, you will be driving around in proverbial circles without knowing your legal and financial options. Whatever that potential action entails should be decided between you and your attorney in the first instance. I am willing to guess that this is not the first time your husband has made a decision in your marriage that has left you baffled. A lawyer should explain to you why it’s a bad idea to endure these kinds of unilateral decisions, and what you can do about them.

The Moneyist: ‘I cut his hair because he won’t pay for a haircut’: My multimillionaire husband is 90. I’ve looked after him for 41 years, but he won’t help my son

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